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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account

On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 18, Ace pays for this inventory and records which of the following using a periodic inventory system?

a.

Accounts Payable

2,000

 

 

      Cash

 

2,000

 

 

 

 

b.

Accounts Payable

1,960

 

 

Purchase Discounts

40

 

 

      Cash

 

2,000

 

 

 

 

c.

Accounts Payable

2,000

 

 

      Purchase Discounts

 

40

 

      Cash

 

1,960

 

 

 

 

d.

Cash

2,000

 

 

      Accounts Payable

 

2,000

 

 

123. On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a periodic inventory system?

a.

Accounts Payable

2,000

 

 

      Cash

 

2,000

 

 

 

 

b.

Accounts Payable

1,960

 

 

Purchase Discounts

40

 

 

      Cash

 

2,000

 

 

 

 

c.

Accounts Payable

2,000

 

 

      Purchase Discounts

 

40

 

      Cash

 

1,960

 

 

 

 

d.

Cash

2,000

 

 

      Accounts Payable

 

2,000

 

 

124. Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a periodic inventory system?

a.

Purchases

2,000

 

 

      Accounts Payable

 

2,000

 

 

 

 

b.

Cost of Goods Sold

2,000

 

 

Unearned Revenue

1,000

 

 

      Sales Revenue

 

3,000

 

 

 

 

c.

Cost of Goods Sold

2,000

 

 

      Accounts Payable

 

2,000

 

 

 

 

d.

Cost of Goods Sold

2,000

 

 

Gain

1,000

 

 

      Accounts Payable

 

3,000

 

 

125. Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account?

a.

Cost of Goods Sold

620

 

 

      Purchases

 

620

 

Accounts Receivable

960

 

 

      Sales Revenue

 

960

 

 

 

 

b.

Accounts Receivable

960

 

 

      Sales Revenue

 

960

 

 

 

 

c.

Purchases

620

 

 

Gain

340

 

 

      Sales Revenue

 

960

 

 

 

 

d.

Accounts Receivable

960

 

 

      Sales Revenues

 

620

 

      Gain

 

340

 

 

126. Davis Hardware Company uses a periodic inventory system. How should Davis record the return of inventory previously purchased on account for $200?

a.

Inventory

200

 

 

      Accounts Payable

 

200

 

 

 

 

b.

Accounts Payable

200

 

 

      Inventory

 

200

 

 

 

 

c.

Purchase Returns

200

 

 

      Accounts Payable

 

200

 

 

 

 

d.

Accounts Payable

200

 

 

      Purchase Returns

 

200

 

 

127. In a periodic inventory system, at the time of a sale the cost of inventory sold is:

a. Debited to Accounts Receivable.

b. Credited to Cost of Goods Sold.

c. Debited to Cost of Goods Sold.

d. Not recorded at this time.

 

 

128. Good, Inc. sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a periodic inventory system?

a. No entry is required for cost of goods sold and inventory.

b. Debit Cost of Goods Sold $700; credit Inventory $700.

c. Debit Cost of Goods Sold $1,200; credit Inventory $1,200.

d. Debit Inventory $700; credit Cost of Goods Sold $700.

 

 

129. The primary difference between the periodic and perpetual inventory systems is:

a. The reported amount of ending inventory is higher under the periodic system.

b. The perpetual system maintains a continual record of inventory transactions, whereas the periodic system records these transactions only at the end of the period.

c. The reported amount of sales revenue is higher under the periodic inventory system.

d. The reported amount of cost of goods sold is higher under the perpetual inventory system.

 

 

130. Suppose that Hastings Corporation overstates its ending inventory for 2015.  What effect will this have on the reported amount of cost of goods sold for 2015?              

a. Overstate cost of goods sold.

b. Understate cost of goods sold.

c. Have no effect on cost of goods sold.

d. Cannot be determined given the information provided.

 

 

131. Bill Inc.’s correct ending balance for the inventory account at the end of 2015 should be $5,000, but the company incorrectly stated it as $3,000. In 2016, Bill correctly recorded its ending balance of the inventory account. Which one of the following is true?

a. Gross profit is overstated by $2,000 in 2015.

b. Retained earnings are understated by $2,000 in 2016.

c. Gross profit is overstated by $2,000 in 2016.

d. Cost of goods sold is understated by $2,000 in 2015.

 

 

 

132. If a company overstates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true?

a. Net income is overstated in year 2.

b. Cost of goods sold is overstated in year 1.

c. Net income is understated in year 1.

d. Retained earnings is overstated in year 1.

 

 

133. If a company understates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true?

a. Net income is overstated in year 1.

b. Cost of goods sold is overstated in year 2.

c. Net income is understated in year 2.

d. Retained earnings is understated in year 2.

 

 

134. If a company understates its count of ending inventory in Year 1, which of the following is true?

a. Costs of good sold is understated at the end of Year 1.

b. Profit is correct in Year 2.

c. The balance of retained earnings is overstated at the end of Year 1.

d. The balance of retained earnings is correct at the end of Year 2.

Jan 27 2020 View more View Less

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